Deutsche Bank gives CHINAHONGQIAO (01378) a "Buy": the turning point of free cash flow is approaching, and it is expected that in the next five years, cumulative returns through dividends and stock buybacks will exceed the current market value by 60%.

Deutsche Bank recently released a research report, resuming coverage of CHINAHONGQIAO (01378), one of the world's largest aluminum companies, with a "Buy" rating and a target price of HKD 33. The report notes that although the company's stock price has declined this year due to sentiment in the Asian aluminum sector, the fundamentals are approaching a significant turning point in free cash flow (FCF), and the current valuation is highly attractive. Deutsche Bank analysts believe that after two decades of rapid expansion, CHINAHONGQIAO has now entered a mature operational phaseshifting its strategic focus towards maximizing cash generation, maintaining stable aluminum output, and gradually relocating production capacity to Yunnan to utilize renewable energy. The expected EV/EBITDA for 2027 is just 3.8 times, with a free cash flow yield of 16%. Notably, over the next five years, the company is expected to return cash equivalent to more than 60% of its current market value through dividends and share repurchases. With a strengthened balance sheet and continued growth in cash returns, CHINAHONGQIAO is likely to attract a broader spectrum of global investors. The report also mentions that the conflict in the Middle East had driven LME spot aluminum prices to peak at about USD 3,850 per ton in early June, with spot premiums also rising sharply; however, following the preliminary ceasefire between the U.S. and Iran, prices have dropped back to pre-conflict levels (currently around USD 3,200 per ton), reflecting factors such as profit-taking by bulls, faster-than-expected resumption in the Gulf region, and robust production in China. Deutsche Bank still expects a market shortage in the second half of 2026, with aluminum prices likely rebounding moderately to around USD 3,300 per ton in the fourth quarter; however, there are upside risks if geopolitical tensions in the Middle East escalate again. Meanwhile, China's capacity ceiling of approximately 45 million tons per year is expected to remain largely stable, but domestic capacity dynamics and supply developments in the Gulf and Indonesia will need to be closely monitored in the second half.